T. Rowe Price Group Inc. (TROW) has been witnessing strong estimate revisions for 2012 and 2013 following its solid third-quarter results, which included a positive earnings surprise. Moreover, this asset management company pays a regular quarterly dividend that yields 2.2% annually. With a steady dividend yield, expected long-term earnings growth rate of 13.8% and a year-to-date price appreciation of 11.9%, this Zacks #2 Rank (Buy) offers a solid growth and income opportunity.
Impressive Third-Quarter Earnings
On October 24, T. Rowe Price reported third-quarter earnings per share of 87 cents, topping the Zacks Consensus Estimate of 84 cents by 3.6% and the year-ago earnings of 71 cents by 22.5%. The improvement was primarily due to impressive top-line growth and increased assets under management, partly offset by elevated operating expenses.
Net revenue climbed 13.3% year over year to $769.7 million, primarily due to an increase in investment advisory fees. However, total operating expenses rose 6.9% year over year to $410.8 million as a result of high distribution and servicing costs, depreciation and amortization expense, as well as compensation and related costs.
Total assets under management increased to $574.4 billion as of September 30, 2012, up 6% from $541.7 billion as of June 30, 2012. Income of $28.4 billion and net cash inflows of $4.3 billion positively impacted assets under management in the reported quarter.
Earnings Momentum Pushes Higher
The Zacks Consensus Estimate for 2012 is up 3.7% to $3.36 in the past 30 days as 16 of 19 total estimates moved higher. The Zacks Consensus Estimate for 2013 advanced 1.6% to $3.80, based on upward revisions from 14 of 21 estimates.
The Zacks Consensus Estimate for 2012 reflects year-over-year growth of about 14.9%, while the expected growth rate for 2013 is 13.3%.
T. Rowe Price hiked its dividend by 10% to 34 cents per share early this year. The current dividend rate affirms an annual yield of 2.2%. This marked T. Rowe Price’s 26th consecutive annual dividend increase, reflecting the company’s ability to return value to shareholders.
Shares of T. Rowe Price currently trade at 18.9x 12-month forward earnings, a 41.0% premium to the peer group average of 13.4x. Its price to book ratio of 4.2 is at a significant premium to the peer group median of 0.9. Given its strong fundamentals, the premium valuation is justified.
Moreover, the company has a trailing 12-month ROE of 22.5% compared with the peer group average of 12.2%. This implies that the company reinvests its earnings more efficiently than its peer group.
Chart Shows Strength
T. Rowe Price has been continuously outperforming the S&P 500 and its 200 days moving average over the last three months, exhibiting a steady growth trend. The year-to-date return for the stock came in at 11.9% compared with the S&P 500’s return of 8.0%.
With rising estimates, a strong earnings growth expectation and a decent dividend yield, T. Rowe Price looks like a promising growth and income driver.
Headquartered in Baltimore, Maryland, T. Rowe Price is an asset management company that was founded in 1937. It provides a host of mutual funds, sub-advisory services and separate account management for individual and institutional investors, retirement plans as well as financial intermediaries. The company operates worldwide from the U.S., the U.K., Hong Kong, Japan and Singapore. The company has a market cap of about $16.1 billion. GAMCO Investors, Inc. (GBL) is a Zacks #1 Rank (Strong Buy) stock in the same industry.
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